Economics

Privatization and management incentives in the transition period in Eastern Europe

Article Abstract:

An analysis of the market and government approaches to privatization in Eastern Europe concluded that government need not and should not privatize all firms simultaneously. According to a theoretical model, immediate privatization results in high bankruptcy and layoff rates, but it also provides incentive for a firm manager to restructure efficiently because he knows the government will not subsidize the company's failure. Government control results in a soft budget constraint for the manager and tends to extend the lifespan of unsuccessful firms. A formula is suggested to determine which firms ought to be immediately privatized.

The transition to free markets: where to begin privatization

Article Abstract:

The sequence of privatization in an industry composed of an upstream producer, a downstream producer and a retail sector is dependent on the capability of each sector to transmit information from one sector to another. Privatization should begin with the downstream producer, being the middle sector, if the retail sector is already private because a public middle sector would curtail the information flow from the lowest sector to the highest sector. The retail or lowest sector should never be privatized first because it has no production capacity.

Russia and Eastern Europe: is transition over?

Article Abstract:

The final outcome of Central and Eastern Europe's economic transformation may not be prematurely assessed. However, there is a growing perception that the transition process has been completed in Central and Eastern Europe. On the other hand, Russia's transition is still considered by many as unclear and confusing. Much discussion on this transition, which began later than in Europe, involves the shock therapy cure applied in Russia.